The questions every entrepreneur must answer

Purpose

Bhide’s paper presents a strategic framework for entrepreneurs based on asking themselves three questions to clarify the goals for their business, pick the right strategies to achieve those goals, and importantly, determine if they can successfully execute those strategies. The framework doesn’t prescribe answers, but instead, “helps entrepreneurs pose useful questions, identify important issues, and evaluate solutions.”

Research

The author doesn’t discuss his research other than to say that he developed his strategic framework through observations of hundreds of startups over an eight-year period. This is typical of articles in the Harvard Business Review, which is not a peer-reviewed journal but an outlet for researchers to connect their work with entrepreneurs and managers.

Summary

The entrepreneur can tackle only one or two opportunities and problems at a time. Therefore, just as a parent should focus more on a toddler’s motor skills than on his or her social skills, the entrepreneur must distinguish critical issues from normal growing pains.

Entrepreneurs are presented with many opportunities and problems, but to be successful in the long run, they must focus on the issues that matter most—the ones that will move the company forward, toward the goals of the entrepreneur. The strategic framework Bhide presents helps do just that. It consists of three steps. The first step clarifies current goals. The second step evaluates strategies for attaining those goals. Finally, the third step helps the entrepreneurs assess their own capacity to execute their strategies.

Figure 1. An entrepreneur’s guide to the big issues (adapted from Bhide 1996).

Are my goals well defined?

Setting a goal sounds straightforward but shouldn’t be overlooked. For instance, the author describes how a salaried executive has a fiduciary responsibility—a goal—to maximize shareholder value, but an entrepreneur is not necessarily bound by that same requirement. There are many possible goals an entrepreneur may have for a business, including seeking personal fulfillment, creating a flexible lifestyle, earning a high income, exploring a certain technology or scientific process, becoming a well-known personality or, of course, changing the world.

Many entrepreneurs say that they are launching their businesses to achieve independence and control their destiny, but those goals are too vague. If they stop and think about it, most entrepreneurs can identify goals that are more specific.

The first step in Bhide’s framework is for entrepreneurs to clarify their goals so they know what they personally want from their business. Once entrepreneurs have determined their goals for the business, they should ask themselves:

• “What kind of enterprise do I need to build?”
• “What risks and sacrifices does such an enterprise demand?”
• “Can I accept those risks and sacrifices?”

After a goal have been determined, the second step is to understand how it can best be obtained. A sound strategy is more fundamental to success for a fledgling company than just about anything, including the operational and implementation details that take up so much of an entrepreneur’s precious time, such as implementing a product feature or defining reporting relationships for a new hire. A company with a sound strategy can overcome many implementation mistakes but there is little chance of long term success without a sound strategy in place.

Four tests will help an entrepreneur understand if their strategies are sound:

• “Is the strategy well defined?”
• “Can the strategy generate sufficient profits and growth?”
• “Is the strategy sustainable?”
• “Are my goals for growth too conservative or too aggressive?”

The third question entrepreneurs must ask themselves may be the hardest to answer because it requires the most candid self- examination: Can I execute the strategy? Great ideas don’t guarantee great performance.

Ultimately, it’s not enough to have clear goals and sound strategies to achieve them. Entrepreneurs must execute the strategies. This third step in Bhide’s strategic framework helps entrepreneurs understand if strategies are right for them—can they execute them effectively. Will entrepreneurs be able to hire the right people, make the right connections, build the needed organizational structure, and evolve into the type of leader the company will need in the future? These can be scary questions: They will reveal mismatches between the entrepreneur’s strengths and the entrepreneur’s goals and one or the other will have to change.

They should ask themselves:

• “Do I have the right resources and relationships?”
• “How strong is the organization?”
• “Can I play my role?”

The Take-Away

Know where you want to go, or you’ll never get there. As a fledgling entrepreneur, I was first exposed to this idea in Michael Gerber’s The E-Myth Revisited. I had launched a software development company in 2005 (Obtiva) and we saw immediate success. Just as is described in Bhide’s article, I recognized a short-term opportunity and grabbed it, only to then realize I needed a longer-term strategy if I wanted the company to grow beyond its opportunistic roots. I learned that it is important to know where you want to go today, even if it might change tomorrow.

By 2007, the company was growing quickly, but haphazardly, and Gerber’s book gave me the framework I needed to step back and assess where I wanted the business to go—based on my personal goals—and then put a strategy in place to make it happen. Using Bhide’s strategic framework has the potential to provide a similar positive effect on you and your business.

Entrepreneurs can weigh heavily toward an action bias—they like to get stuff done¹ . Like gunslingers in the Old West, entrepreneurs tend to shoot first and strategize later. That will get your business started. But, over time, taking action in the wrong direction will only lead you further from your goal. Instead, ask yourself the questions discussed here in order to reflect on where you are now and where you want to go. You just may get there.

References

1. With an action bias, a person prefers taking action to see what happens rather than analyzing a situation to death, potentially losing the opportunity to act altogether (i.e., analysis paralysis).